The Broad-Based Black Economic Empowerment (B-BBEE) Amended Codes of Good Practice emphasises that companies are required to be rated on the Ownership Element. In addition, if companies do not achieve the subminimum for this element, they will be discounted a B-BBEE level.
It has been acknowledged by the Department of Trade and Industry (DTI) that there may be multinational companies that have global practices preventing them from complying with the Ownership Element of B-BBEE through the traditional sale of shares to black South Africans. The Amended Codes of Good Practice have made provision for the recognition of contributions instead of the direct sale of equity.
The above mentioned contributions are referred to as Equity Equivalent Contributions. The value of these contributions will either be measured against 25% of the value of the multinational’s South African operations or against 4% of the total revenue from its South African operations annually over the period of measurement.
The Equity Equivalent Contribution will have to entail a public programme and/or private programme designed to fulfill the requirements of the B-BBEE Ownership Element. It may also entail a programme targeting investment or any other programme that promotes socio-economic advancement or development within the South African Economy.
It is important to note that this is a form of exemption of the sale of equity, in order to obtain points on the Ownership Element. As such, the programme first needs to be approved by the Minister of Trade and Industry in order to qualify for Ownership points on the scorecard.
A proposal for an Equity Equivalent Programme will first have to be developed by the representative company of the foreign multinational for submission to the Department of Trade and Industry.
The above mentioned programme will have to specify in detail the proposed forms of Equity Equivalent. Examples of recommended forms specified by the DTI are Enterprise Creation Programmes and Initiatives that must lead to sustainable job creation. The Equity Equivalent Programme will naturally have to be aligned with the B-BBEE Act in terms of the black beneficiary base.
There are, however, various requirements that first needs to be adhered to. The application for exemption must specify the following:
- The reasons for being unable to sell equity in South Africa.
- Disclose all countries where equity was sold.
- Where equity was sold, motivation must be provided as to the circumstances that formed the decision to sell.
- The value of the South African operations against that of the holding company.
- Confirmation by means of an independent audit verifying the multinational’s assertion of having or not having sold equity in any of their global operation.
The amount of the Equity Equivalent Contribution will determine the time period for which the contribution will be valid for. This ranges from three to ten years.
Do not hesitate to contact us today to ensure that you comply with all parts of the B-BBEE law.
ABOUT THE AUTHOR
Edmund Drake has been a SEESA BEE Legal Advisor since January 2016. He obtained his Bcom (law) degree in 2011 and his LLB degree in 2013. He thereafter completed his articles at Greyvensteins Inc after which he was admitted as an Attorney and Notary of the High Court of South Africa.